Virginia and Tennessee tightened their non-compete rules on the same date. Since July 1, 2026, a Virginia non-compete cannot be enforced against an employee fired without cause unless the employer pays severance or another monetary payment disclosed when the covenant was signed. Tennessee chose a different tool. Non-competes are void for employees earning under $70,000 in annualized compensation, and statutory presumptions now govern how long a restriction can last. If you hire in either state, your offer packages, executive contracts and termination procedures must line up. Here is how each law works and how to draft agreements that still hold.
Virginia non-compete and severance: what the rule says
Virginia already banned non-competes with "low-wage employees." Since 2025, that category includes every employee entitled to overtime under the Fair Labor Standards Act, plus workers earning below the state's average weekly wage. Senate Bill 170, signed on April 13, 2026, adds a test that reaches every employee regardless of pay. A non-compete is unenforceable if the employer discharges the employee without cause and does not provide severance benefits or another monetary payment. That payment must be disclosed when the covenant is signed.
Three elements matter. The trigger is narrow: only a termination by the employer, without cause. An employee who resigns or is fired for cause can still be bound, provided the covenant is otherwise lawful and reasonable. The payment is undefined. The statute sets no minimum and does not define "severance benefits," so a token amount invites the argument that nothing real was provided. The timing is strict. The promise must appear when the covenant is executed, not in a letter drafted on the way out.
The rule applies to covenants entered into, amended or renewed on or after July 1, 2026. Older agreements are not invalidated. However, an annual re-signature of a restrictive covenant agreement, or a promotion package that amends the covenant, is likely to bring the document under the new regime.
Legal framework in Virginia and Tennessee
Virginia's rules sit in Va. Code § 40.1-28.7:8. Subsection C holds the severance condition. Subsection B bans covenants with low-wage employees and, since HB 627 and SB 128, with health care professionals licensed by the Boards of Medicine, Nursing, Counseling, Optometry, Psychology or Social Work, subject to carve-outs for business sales and recruitment-cost repayment. The statutory definition of a covenant also excludes serving a customer who approaches the former employee unsolicited.
Any employee can sue a former employer that tries to enforce an unlawful covenant. The action must be brought within two years of the latest of four events: signature, discovery of the covenant, termination, or the employer's first enforcement step. Courts can void the covenant, enjoin enforcement and award liquidated damages, lost compensation and attorney fees. The Commissioner of Labor and Industry can add a civil penalty of $10,000 per violation, and every employer must post the statute or an approved summary. The full text is on the official Virginia Code page for § 40.1-28.7:8.
Tennessee long relied on common-law reasonableness. House Bill 1034, signed by Governor Lee on May 7, 2026, adds Tenn. Code Ann. §§ 50-1-210 and 50-1-211. The first section sets rebuttable presumptions on duration and confirms that courts may modify an overbroad covenant instead of striking it. The second bars employers from requiring, requesting or enforcing a non-compete against an employee whose annualized compensation is below $70,000. Such a covenant is void as a matter of public policy, so judicial modification cannot save it. The law applies to agreements entered into, renewed or amended on or after July 1, 2026.
Drafting a Virginia non-compete that survives a without-cause exit
Start by writing the severance promise into the covenant itself, or into an exhibit signed the same day. A non-compete and non-solicitation agreement drafted for state-specific rules should state the amount or formula, when it is paid, and that it supports the restriction. Common structures include weeks of base salary per year of service, a fixed sum, or salary continuation for the restricted period.
Then define cause. The statute does not, and vague wording such as "any legitimate business reason" will likely be read against the employer. List objective events instead: willful misconduct, material policy breaches after written notice, offenses involving dishonesty. If poor performance should count, say so expressly and require documented warnings first.
Finally, check how the payment interacts with the release. Suppose the covenant-supporting payment is only paid when the employee signs a release of claims. An employee who refuses to sign then receives nothing, and the statute's condition is arguably unmet. The cautious structure separates the payment that supports the non-compete from any additional amount offered in exchange for a release. The severance agreement and release can then confirm the first payment and negotiate the second, so the covenant never depends on the employee waiving claims. No court has ruled on this point yet, which is one more reason to draft conservatively.
Tennessee's $70,000 floor and duration presumptions
Tennessee's floor is a compensation test. Annualized compensation includes wages, salary, commissions, nondiscretionary bonuses and other remuneration. For hourly workers, the rate is multiplied by 40 hours and then by 52 weeks. The figure is not indexed to inflation, and the statute does not expressly cover independent contractors. Because the ban reaches requesting and enforcing as well as requiring, check pay when the covenant is signed and again before any enforcement step. Commission-heavy roles are the classic edge case.
Above the floor, a restriction of two years or less after the relationship ends is presumed reasonable for employees and contractors, and anything longer is presumed unreasonable. Distributors, dealers, franchisees, lessees and trademark licensees get three years. In the sale of a business or an ownership interest, the presumption runs for the longer of five years or the seller's payment period. That strengthens the restrictive covenant in a business purchase agreement.
Severance does not rescue a Tennessee non-compete signed with an employee below the floor. What remains are the covenants the statute leaves untouched: confidentiality agreements and customer and employee non-solicitation clauses. Multi-state employers should also compare these rules with Washington's near-total non-compete ban starting in 2027. A single national template rarely satisfies all three states.
Building compliant agreements on Captain.Legal
On Captain.Legal, the non-compete questionnaire starts with the employee's work state, role and compensation, then shapes the covenant around that state's rules. For a Virginia hire, you enter the severance amount or formula and your definition of cause, so the disclosure is in the document at signing. For a Tennessee hire, you check annualized compensation against the $70,000 floor before choosing between a non-compete and confidentiality and non-solicitation terms. You also set a duration within the statutory presumptions. Every clause stays editable before signature. The finished agreement downloads in Word and PDF, and your account keeps the signed version. When a without-cause termination happens, you can check the amount paid against the amount promised.
Common mistakes with Virginia and Tennessee non-competes
The most frequent Virginia error is assuming the rule concerns low earners only. Since July 1, 2026, the severance condition reaches executives too. Another is promising severance in an offer letter signed weeks before the covenant, which muddies the disclosure at execution. A third is leaving cause undefined, firing a manager for weak results, and losing the covenant.
Renewals are the quiet trap in both states. Re-signing restrictive covenants with each equity grant or promotion can pull old agreements under the new rules. In Tennessee, employers often copy a three-year non-compete from an old template and count on the court to trim it. They then litigate against a presumption of unreasonableness. Many employers also run one national template, when Virginia, Tennessee and Washington each now call for state-specific drafting. Before any without-cause termination in Virginia, confirm that the promised payment is ready to go out.
Frequently asked questions
Is a non-compete enforceable in Virginia if I am fired without cause?
Only if your employer provides the severance or other monetary payment that was disclosed when you signed. This rule covers covenants entered into, amended or renewed on or after July 1, 2026. Without that payment, Va. Code § 40.1-28.7:8(C) makes the non-compete unenforceable. If you resign or are fired for cause, the covenant can still apply, unless you are a low-wage employee or a covered health care professional. Older, unamended agreements remain subject to the prior statute and to general reasonableness rules.
How much severance does Virginia require to keep a non-compete valid?
The statute sets no minimum and does not define "severance benefits or other monetary payment." A nominal sum invites the argument that no real severance was provided. For that reason, employers usually tie the amount to pay, such as weeks of base salary or salary continuation for the restricted period. State the amount or formula in the agreement or in a same-day exhibit. An executive employment agreement can carry the severance terms and the covenant in one signed document.
What is the deadline to sue over an unlawful non-compete in Virginia?
Two years, counted from the latest of four dates: signature of the covenant, the day the employee learned of it, the end of employment, or the day the employer took any step to enforce it. That last trigger can come long after departure, so a demand letter sent years later starts a new window. Separately, the Commissioner of Labor and Industry can impose a $10,000 civil penalty per violation. That penalty applies independently of any lawsuit brought by the employee.
Who is covered by Tennessee's $70,000 non-compete threshold?
Employees whose annualized compensation is below $70,000, counting wages, salary, commissions, nondiscretionary bonuses and other remuneration. Hourly pay is converted by multiplying the rate by 40, then by 52. The statute does not expressly cover independent contractors, and the figure is not indexed to inflation. Below the floor, employers cannot require, request or enforce a non-compete. Any such covenant entered into, renewed or amended on or after July 1, 2026 is void.
What can employers use instead of a non-compete?
Confidentiality agreements remain available in both states, and Tennessee expressly preserves customer and employee non-solicitation clauses. An employee non-disclosure agreement protects trade secrets and client data without limiting where the person works next. In Virginia, the statutory definition of a non-compete excludes serving customers who contact the former employee on their own. A non-solicitation clause should therefore target active solicitation rather than every later contact.
Is a Captain.Legal non-compete legally valid in Virginia and Tennessee?
It can be, provided the facts entered are accurate and both parties sign. Validity depends on those facts. A Virginia covenant needs a severance promise disclosed at signing and a clear definition of cause. A Tennessee covenant is void if the employee earns under $70,000, whatever the drafting. Courts also review scope, geography and duration for reasonableness. For unusual roles, health care professionals or sale-of-business deals, have counsel review the final version before signature.
Can I download the non-compete and severance agreement in Word or PDF?
Yes. Both documents come in Word and PDF. The Word file lets you or your lawyer adjust the severance formula, the cause definition or the restricted territory, and track negotiated changes. The PDF is ready for signature and filing. You can generate updated versions from your account when an employee is promoted or a covenant is renewed. That is precisely when the July 1, 2026 rules start to apply to older agreements.